adminTHE establishment of a debt or bond market could help Zimbabwe attract both domestic and international investment, experts have said.
The Zimbabwe Stock Exchange (ZSE) is planning to revive the bond market, but there fears that Government’s US$1,7 billion domestic debt will affect progress.
A bond market is a regulated financial system that allows the public and private sectors to raise money by floating debt instruments.
It is believed that by resuscitating the debt market, which collapsed in 2001, the ZSE will make it easier for both public and private sectors to raise capital and provide an additional avenue for investments.
Many portfolio managers are currently reluctant to invest in the stock exchange, which has crashed 17,2 percent from a year ago.
Last year, the ZSE plunged 33 percent.
Experts said the existing appetite for capital will help spur the planned bond market.
“The liquidity challenges are there but we have opened up the debt market, which means foreigners can also come in and buy on the primary and secondary market,” said ZSE chief executive officer Mr Alban Chirume during a debt seminar in the capital last week.
“Pension funds are reeling from the drop in prices on the equity side, so they will move some of their money from to the debt market, which is more stable and the returns are more known.”
With just US$410 million of foreign direct investment (FDI) coming through in 2014, Government is aggressively scouting for funds to inject into its local infrastructural projects.
“Government does not have a record of defaulting repayments, especially when you look at how they have been doing with the Treasury bills.
“They have been paying what they are supposed to be paying. Yes, there are certain debts that may be there but they have made sure they pay various coupons, various instruments.
“Government sees it as important, if they are to issue bonds, they will look at those projects that are self-funding so it means it will ring fence the income from that and pay the coupon (rate) and the principal,” explained Mr Chirume.
Botswana Stock Exchange deputy chief executive Mr Thapelo Tsheole said the country could leverage on the debt market to raise capital for both the public and private sectors.
“When there is illiquidity then you have a situation where many of the sectors are trying to increase their productive capacity to export out of the country, and also to take care of the opportunities that are created in the country.
“You can take advantage of that and attract capital from outside the country and also some capital that is domestic but has been exported outside the country,” said Mr Tsheole.
ZSE is presently working with the stock exchanges in Botswana and South Africa on the pricing and regulatory frameworks that the debt market could assume.
The Johannesburg Stock Exchange in South Africa, with a market capitalisation of over US$1 billion, is the largest exchange in Africa and one of the world’s 20 largest exchanges.
Since dollarisation, some local companies have been reeling under liquidity challenges, low capacity utilisation, foreign competition and high cost of borrowing.
An analyst with Lynton Edwards Stockbrokers noted that many companies are resorting to short-term bank loans offered at punitive interest rates to fund their working capital needs.
Until recently, when the Reserve Bank of Zimbabwe capped interest rates at 18 percent, lending rates were as high as 26 percent.
This has limited lending towards productive sectors of the economy.
“Banks have been giving short-term loans and that mismatch is what this market (debt market) is bridging,” said the analyst, who cannot be named as he is not authorised to speak to the Press.
Imara Edwards Securities executive director Mr Tino Kambasha said a debt market will always thrive in any economy given “there will always be a need for debt.”
He said although it might not trade as much as anticipated, the ZSE has made a positive initiative to revive and formalise the debt market, which might bring relief to the economy.
Meanwhile, the ZSE is presently awaiting the approval of the debt market listing requirements from the regulator, the Securities and Exchange Commission of Zimbabwe (SecZim).
Online Reporter